Asian shares capped by US stock fall, ECB eyed

Nikkei opens down 0.5%; dollar stays near lows against basket of six major currencies

Asian shares were capped on Thursday, weighed by a fall in US equities overnight and caution before the European Central Bank's interest rate decision later in the session.

The dollar remained vulnerable, staying near lows against a basket of six major currencies which hit its lowest since late February at 81.331 on Wednesday, after the US Federal Reserve kept its plan to buy $85 billion in bonds each month, as was widely expected.

The dollar's weakness lifted the euro to a two-month high of $1.3243 on Wednesday, and the common currency was steady at $1.3178 early in Asia this session. The euro's steady state was despite heightening market expectations for the ECB to cut its main interest rate by 25 basis points to a record low 0.5% later on Thursday.

"Poor growth prospects remain a major deterrent to credit demand in the euro zone. The lack of credit demand points to further contraction in the region. This poor prognosis along with the disappointing read on Germany's PMI in April should see the ECB ease policy," Barclays Capital said in a research note.

Oil futures and US stocks dropped on Wednesday after the latest economic data in the United States and China cast doubts about the strength of the global economy.

"The consolidation in economic momentum through March and April has resulted in a modest easing in risk appetite. In particular, there have been corrections to commodity prices, while high yield spreads and non-commodity based equities remain relatively well-supported," Barclays noted.

MSCI's broadest index of Asia-Pacific shares outside Japan was nearly flat in early session. Most Asian markets were closed on Wednesday for the Labour Day holiday. Australian shares eased 0.1% and South Korean stocks opened down 0.1%.

Japan's Nikkei stock average opened down 0.5%.

The dollar fell 0.3% against the yen to 97.12, pressured by emerging signs of weakness continuing in the second quarter.

The ADP National Employment Report on Wednesday said the US private sector added 1,19,000 jobs in April, far fewer than 1,50,000 forecast, raising apprehension over the key government nonfarm payrolls data for April due on Friday. The US economy likely added 1,45,000 jobs. March's number fell severely short of expectations at 88,000 triggering a sell-off in riskier assets.

Also on Wednesday, the US Institute for Supply Management said its index of national factory activity fell to 50.7 from 51.3 in March and its employment index fell to 50.2 from 54.2.

"The feeling that the economy was subject to downside risks remained a feature, while the Fed hinted that it could alter the amount of its bond purchases in either direction in response to incoming data," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, said in a note to clients.

The Fed gave few indications of any new response to worsening economic data in a statement released after its two-day meeting ended on Wednesday. The US central bank cited risks to growth from recent budget tightening in Washington and reiterated that unemployment is still too high for policymakers' comfort.

Benchmark 10-year US Treasury yield fell to a four-month low of 1.614% on Wednesday before the Fed statement.

US crude futures were down 0.2% to $90.87 a barrel.